Investors on alert as rival camps tussle over best way to run Independent

Denis O'Brien wants the size of the Independent News & Media board halved and claims other shareholders in the company are becoming increasingly concerned about the close ties of its directors to the chief executive, Sir Anthony O'Reilly, prior to the group's annual meeting in June.

The Irish billionaire O'Brien, who has spent the past two years building a 22% stake in the ownership of the Independent newspaper despite fierce opposition from O'Reilly, said: "I think the other shareholders are ... sitting up."

O'Brien's advisers, the Davis Group, are putting the finishing touches to a report on INM's governance, which the billionaire believes has worsened since he first raised his concerns during last year's annual meeting. At that meeting a similar report produced by O'Brien's camp was dismissed by one angry shareholder as "18 pages of shite".

O'Brien has yet to decide whether he will attend the AGM on June 11, but says he has no doubts as to the problems within the company. "They need to restructure the board entirely," he said. "Instead of having 20, best practice would be to have 10 to 11 people and they need to put maybe four or five people under

30 on the board. I'm talking about a complete mind change."

He believes that too many board directors have ties with O'Reilly, who has a 28% stake in the business and that other shareholders are also worried. "People are now buying into the fact that corporate governance [there] is just non-existent."

He refused to say whether any other shareholders had contacted him to raise their concerns, in part because both the O'Brien and O'Reilly adviser teams are watching the situation for signs of other shareholders becoming a concert party and acting together - which would seriously hamper their ability to trade shares.

Over recent weeks other influential shareholders have appeared on the roster at the media group.

Carlos Slim, the world's second richest man, has bought a small stake in the firm. Like O'Brien, his fortune has been built on telecommunications. His South American empire has clashed with O'Brien's expanding Digicel operation in the past. However, a spokeswoman for Slim said that his purchase only represented "a financial investment ... the investment in Independent News & Media does not imply any attempt to purchase Digicel".

Tweedy Browne, the US investment fund that famously clashed with Conrad Black, has also built up a stake in INM. It was Tweedy Browne's questioning of Black's complex financial dealing while running Hollinger that led the company to carry out an investigation which eventually led to Black's fraud conviction.

O'Brien maintains he sent his concerns in writing to the INM board but received little response.

He remains perplexed as to why the group is holding on to the loss-making Independent newspaper and believes the board has failed to react to the changes in the media industry that have been brought about by the internet. "The big concern I have about the newspaper is the way they just don't get new media," he said. "A lot of the older style newspaper groups, they reject the idea, then they try and fiddle around with it and the third phase is they ... panic. Now Independent News & Media have not even woken up to it."

The tussle over INM has become increasingly acrimonious this year, with the board attacking O'Brien as a "dissident" shareholder in March.

This month, O'Brien had that statement removed from the archives of both the London and Dublin stock exchanges as "a highly personal and unwarranted attack".

Last week, INM published its annual report, which said the company chairman, Brian Hillery, and 11 other non-executive directors, were independent. It said Hillery's chairmanship of the energy firm Providence Resources, in which O'Reilly is an investor - and where the chiefexecutive is the latter's son, Anthony Jr - did not compromise his independence. The report also said it found no problem with Hillery being the brother-in-law of another non-executive director, the Dublin stockbroker JC Davy.

But it said Sir Anthony's sons on the board, Cameron as well as Anthony Jr, could not be considered independent. Another son, Gavin, is the company's chief operating officer.

The company defended a number of directors, arguing in the report that their independence could "be enhanced through a long-standing relationship

with the company, which encourages an active and informed contribution to the board of INM".

O'Brien, however, has other ideas: "You always judge a board by - would a board fire a chief executive? And that would never happen."